Long-delayed Expansion of Kansas Coal Plant Now Considered Unlikely

Chances that an 895-MW project to expand Sunflower Electric Power Corp.'s coal-fired Holcomb Station in Kansas will ever be completed are "remote," a key project partner said.

Tri-State Generation and Transmission Association-a Denver-based power generator owned by 43 electric cooperatives that partnered with Sunflower in 2005 to build the new unit-in an August 10-Q filing with the Securities and Exchange Commission described the probability of "entering into construction for the Holcomb Expansion as remote."

While the Kansas Supreme Court this March upheld a 2010 air permit for the new unit in a rare victory for a coal generator, the permit will expire if construction of the expansion does not begin within 18 months, Tri-State explained. Based on the assessment that the construction is unlikely to begin soon, "we have determined that the costs incurred for the Holcomb Expansion are impaired and not recoverable," Tri-State said.

The company estimated impairment losses, which are related to development costs, including costs for the option to purchase development rights for the unit, are $93.4 million. "At the discretion of our Board, the impaired loss has been deferred as a regulatory asset and will be recovered from our Members in rates," Tri-State said.

A Slow, Painful Demise

The project got its start in August 2005, when Sunflower and Tri-State announced an agreement to build two new coal-fired units at the existing 360-MW Holcomb Station.

But in October 2007, though the Kansas Department of Health and Environment (KDHE) recommended approval of a prevention of significant deterioration (PSD) permit, the KDHE secretary-acting in line with the administration of then-governor (and later U.S. Secretary of Health for the Obama administration) Kathleen Sebelius (D)-denied the permit based on the level of carbon dioxide emissions from the proposed plant.

Between 2007 and 2009, the Kansas Legislature passed four bills to try to force approval of the permit, all of which Sebelius vetoed. In 2009, Sebelius' successor, Mark Parkinson (D), brokered a bipartisan compromise that allowed Sunflower to resume the permitting process for one 895-MW unit. The project finally received its PSD permit in December 2010, allowing for construction to begin within 18 months.

However, in October 2013 the Kansas Supreme Court invalidated the permit, ruling in favor of the Sierra Club, which had challenged the permit. So KDHE initiated the process to reissue the permit with modifications in January 2014, and in May that year it issued the permit to Sunflower, re-paving the way for the new supercritical coal plant to begin construction and operation.

But the Sierra Club sued again in July 2014, saying the permit still violated the Clean Air Act and Kansas law. And, after much legal back-and-forth, the Kansas Supreme Court this March upheld the PSD permit.

"Sierra Club asserts recurring arguments suggesting KDHE should have conducted a new permitting process on remand, should have required updated modeling and assessments, and should have applied regulations that became effective after December 16, 2010," the ruling explains. But, it notes, "Sierra Club failed to establish KDHE erred in adding an addendum to Holcomb 2's 2010 permit."

For Sunflower, the state Supreme Court's decision was "another incremental step in the process" begun 10 years before. "Much work-by the Court, KDHE technical staff, and Sunflower staff-has gone into making certain that the [Holcomb Expansion Permit] air permit meets all applicable state and federal requirements," it said on March 17.

A New Direction for Tri-State

The future of the Holcomb project, which some industry observers have deemed the last new coal project that is likely to be built in the U.S., remains murky, however. Sunflower has remained reserved in announcing a decision to continue the project, saying it would instead "continue to assess the project relative to other resources." Tri-State spokesperson Lee Boughey on September 19, meanwhile, stressed that the board has "not made a decision on how to proceed with the Holcomb project."

During the decade-long delay, Tri-State has also moved to meet current and projected electric needs of its members by adding other generation resources, including 470 MW of renewable resources to date (and 75 MW more later this year) as well as a 272-MW combined cycle natural gas plant in Colorado, Boughey said.

That doesn't mean the company will discount future coal projects. Asked about the company's general outlook on the future of coal generation in light of the myriad challenges this project faced, he said: "Coal will continue to be an important part of the association's diverse resource mix."

For Tri-State, "coal remains an affordable and reliable fuel to responsibly produce electricity," he explained, noting the company continues to invest in coal technology, including supporting Wyoming's Integrated Test Center. "That facility will be the home for carbon management research and demonstration, including carbon utilization technologies."

According to the Sierra Club, the project remains "active"-though it is one of only 14 proposed U.S. coal projects designated that status. The environmental group that waged a fierce campaign to keep the project from being built is optimistic, however, that the expansion won't come to fruition.

Representatives of the group's Beyond Coal Campaign point out that project costs alone-which they say are an estimated $2.8 billion-will need financing approvals, which will be difficult in the Kansas market. The project's power would be sold within the Southwest Power Pool, a regional transmission organization spanning 14 states that has noted a rapid increase in the amount of wind generation in its region over the past 10 years.

"According to the U.S. Energy Information Administration estimates of overnight capital costs, the $2.8 billion cost for the plant could cover the capital costs of 1.5 GW of wind or 1.1 GW of utility scale solar," the Sierra Club said.

-Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

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